Market liberation and EU accession plans has played a great part in attracting foreign direct investments to candidate countries of the Central and South-eastern European region. Market potential, low labour costs, trade openness and geographical & cultural proximity has made these countries a popular destination for business expansion, especially from western European countries.
Furthermore, the accelerating growth that our economies were experiencing constituted our region to be considered as a lucrative emerging market, with retail banks focusing on increasing their market share through credit expansion. Research conducted by EBRD showed that credit to the private sector was experiencing growth rates in many cases reaching 30 to 50 percent per annum –typical characteristic of developing economies.
For us in the call centre business, this meant a surprisingly large amount of contracts being about telemarketing campaigns promoting credit cards, consumer loans, and mortgages. Collections on the other hand, were considered a niche market in most countries. It was an expensive endeavour, usually handled by account managers or branch managers.
Today however, we are experiencing a different reality. The effects are more severe in some countries and some sectors than others, but the fact remains that things have changed. Old ways do not work any more.
Since the outburst of the global financial crisis there has been a dramatic change in the flows of net FDI into CEE countries. A careful look in the graph below reveals that after reaching its peak of 86 USD bn in 2008, net FDI inflows have plummeted to 21 US bn the next year finally reaching 17 US bn in 2010.
The CESEE banking sector is the one affected the most from both the decrease in net FDI inflows and the shift towards newly emerging markets (eg BRIC), as it is to a great extend dominated by subsidiaries of western European institutions. Banks from G10 (now 13) countries, including France, Germany, Spain, and Italy, that have been investing in our region, are now facing capital and funding pressures that are forcing them to cut funding to their subsidiaries beyond the level warranted by local conditions.
According to the European Bank for Reconstruction and Development, Western European banks likely withdrew funding from subsidiaries in central and eastern Europe at a faster pace in the second quarter of 2012, a development that could threaten financial and economic stability in the region.
In Poland, for example, two-thirds of the banking sector is owned by foreign financial institutions, and in the last three quarters, the value of funds in the coffers of the Polish affiliates has dropped by zł.15 billion – or 8.6 percent – of their overall value. Other examples include the Austrian banks Erste, Raiffeisen and Unicredit Bank Austria who were downgraded by Moody’s on heavy exposure in Eastern Europe, despite the strict measures imposed about a year ago by Austrian bank supervisors to limit future lending in their eastern European subsidiaries.
And this is not expected to end soon. Under the new Basel III regulations, which will be implemented in the EU by 2013 (subject to transitional provisions), credit institutions have to gradually increase their capital base. In addition, as part of the EU-level agreement on measures to restore confidence in the banking sector, certain European credit institutions are required to establish a buffer, so that the Core Tier 1 capital ratio reaches 9% and a loan to deposits ratio of not more than 1.1.
All of the above lead to the conclusion that today the need to raise capital is more urgent than ever. However, traditional sources seem to be insufficient. Deposits have taken a great hit in 2009 and are recovering since at a very moderate pace –certainly not sufficient to help reach the loan-to-deposits target Also sale of collaterals doesn’t seem to be an option, with houses and cars losing significant market value by the minute.
The new role of collections
Facts we face today:
• The volume of NPLs will remain increased
• Unemployment levels will rise even more
• Household income declines
• International groups focus now at home troubles
• We are facing ever-tightening regulations
• Lack of Liquidity
And now the role of debt recovery has become critical, from a few unnoticed desks, collection has turned into a key, heavy duty, department to maintain profitability.
According to a study (by the Association of Credit & Collection Professionals), nearly 3 out of 4 (72%) believe that it has become more acceptable over the past decade for consumers not to pay their debt. And this trend is expected to continue over the next years. Collection operations need to work 2 or 3 times as hard to get the same results they did several years ago.
Today we need to rethink the way we perform collections. We need to reform the Collections ABCs. That is to redesign the way we do analytics, processes and metrics. And to include a new variable in our business: compliance.
Teams per product
Intelligent call routing according to agent skills
|Processes||Imposed phone call
|Alternative payment channel
New priorities & targets
|Digital collection strategy
Dynamic processes encompassing new technologies, strategies & regulatory restrictions
|Value of collections|
|Compliance||Questions that need to be addressed:
• How to control the level of aggressiveness in attempting to get debtors to pay and become negotiators in an effort to the debt paid even if it takes longer.
• How to juggle getting results and working with sensitive situations in debtors lives.
Last words of wisdom
- Consumers are becoming savvier about collection efforts and as a result traditional approaches are becoming less effective and more expensive.
- Collections are moving beyond traditional measures such as total collected amount and accounts per agents, to metrics that accurately measure quality, efficiency and profitability.
- The opportunity to leverage the most of collections, lies in the ability to adapt fast to changes. In order to perform under constant change, it is imperative to view the available supporting technology as the backbone of an effective collection process.
Mellon Market Analysis & Research